When you get a new car, you’ll need car insurance to drive legally. But just what is car insurance?
You might not know for sure, especially if this is your first vehicle. And just knowing that you need it isn’t enough. You really should understand how it works so you can pick the coverage that’s right for you.
Below, we’ll explain what car insurance is and how it works so you can feel comfortable choosing the best car insurance for your needs.
What Is Car Insurance?
Car insurance is a type of coverage that protects you against financial loss related to your car. It reimburses you if you’re in an accident or if your car is stolen. In exchange for this reimbursement, you’ll need to pay a monthly premium to the insurance company.
There are different types of car insurance. This lets you pick just the kind of coverage you need based on your state’s laws and your personal preferences.
Nearly every state requires you to have bodily injury liability coverage and property damage liability coverage:
- Bodily injury liability coverage will cover costs for any injuries or deaths you or someone driving your car causes.
- Property damage liability coverage will cover costs for any property damage you or someone driving your car causes.
Remember, those two types of coverage are for if you’re at fault in an accident. This means you are the person that caused the accident. By requiring this insurance, states can make sure you’ll be liable if you hit someone.
While these are the main two types of coverage, they aren’t the only ones. You may want to take out additional insurance to protect yourself, your passengers, and your car if you’re in an accident. Some other popular auto insurance coverages include:
- Medical payments or personal injury protection (PIP). This covers costs for medical bills for you or your passengers if you’re in an accident.
- Uninsured motorist coverage. This covers costs if you’re in an accident caused by a driver without insurance.
- Collision coverage. This covers costs for damage to your car if you are at fault for an accident.
- Comprehensive coverage. This covers costs for damage to your car from something other than a collision, like a fire or a flood.
- Glass coverage. This covers costs for damage to your windshield, like a crack or chip.
About 12.6% of U.S. drivers were uninsured as of 2019. As you can already see, this is a bad idea, as insurance provides a valuable resource for drivers after a collision.
How Does Car Insurance Work?
Are you still asking yourself, “what is car insurance, and how does it work?” Don’t worry. We’ll go more in-depth now so you can understand how car insurance protects you.
How Car Insurance Works If You Are at Fault
Let’s imagine a scenario. You’re driving on the highway, and you accidentally merge into another car while trying to switch lanes. It’s just a fender bender, but both cars have some damage that will need to be repaired.
Since you’re at fault, you’ll need to report the accident to your insurance. The other driver will also call their insurance so they can file a claim with your insurance company.
Your insurance company will then pay for the repairs to the other driver’s car. This is what your liability coverage is for.
But what about your car? If you have collision coverage, you can also make a claim with your insurance to get the damages covered. First, though, you’ll need to pay a deductible.
A deductible is a set amount of money you need to pay every time you’re in an accident. An average deductible is usually $500, so if your car costs less than that to fix, you probably shouldn’t turn your damages over to insurance.
How Car Insurance Works If You’re Not at Fault
Now, imagine it was the other car who merged into you. Clearly, you are not at fault in this situation. As long as the driver doesn’t hit and run, you should exchange insurance information.
Once you have their insurance information, the first thing you’ll want to do is call your insurance company. They’ll ask you for details about the accident, and they may ask you to provide documentation like pictures or a police statement. This helps them verify you weren’t the one that caused the collision.
After the at-fault driver’s insurance company verifies they were the one who caused the accident, they’ll pay for repairs to your vehicle. But what if the other driver doesn’t have insurance?
This is where your uninsured motorist coverage would kick in. After you pay your deductible, your insurance will cover repairs to your vehicle.
What Does Car Insurance Cover?
What auto insurance covers all depends on the type of insurance you have picked out. Let’s take a look at the different types of scenarios car insurance will cover based on the type of coverage.
Liability Coverage
When you cause an accident, with liability, you can get coverage for:
- Damage to vehicles
- Damage to objects
- Injuries to drivers
- Injuries to passengers
- Legal fees if you are sued over an accident
Comprehensive Coverage
With comprehensive, you can get coverage for damage that’s out of your control, like:
- Hitting an animal
- Vandalism
- Falling trees
- Wind damage
- Flood damage
- Theft
Collision Coverage
With collision, you can get coverage during several incidents, including:
- Hitting a guardrail or street sign
- Flipping your vehicle over
- Hitting another car
- Being in a hit and run
Medical Payments Coverage
With medical payments or PIP, you can be covered for:
- Medical bills for yourself
- Medical bills for your passengers
- Lost wages if you can’t work due to injury
- Disability and rehab costs
- Death benefits
Uninsured Motorists Coverage
Depending on the type you get, uninsured motorist coverage can offer:
- Payment for medical bills for you and your passengers
- Payments for damage to your vehicle
What Doesn’t Car Insurance Cover?
There are a few instances where your car insurance won’t cover you. As an example, a normal car insurance policy won’t cover you if you’re in an accident while using your car for business. That’s because a commercial vehicle requires a different policy.
This doesn’t include driving to and from work; it means things like using your car to deliver work materials across town or being a rideshare driver.
Most car insurance policies also don’t cover your personal property. This means if you’re in an accident and your laptop gets crunched, your car insurance won’t cover that. However, if you have homeowners insurance, you may be able to turn the loss over to them for reimbursement.
If you’re in doubt about what your policy does and doesn’t cover, your best bet is to refer to your policy documents. You’ll get these when you sign up for your insurance, and they’ll go over all the fine print details about your coverage limitations.
Who Does Car Insurance Cover?
Besides yourself, your auto insurance can also cover other people driving your car? However, it depends on the type of coverage.
Collision and comprehensive coverage follow the car, meaning that your car will be protected in an accident no matter who is driving.
But liability coverages follow the driver. This means that if you loan your car to a friend and get into an accident, their insurance should foot the bill.
The only problem is if they are uninsured. In that case, the burden will fall on your insurance company to pay for the damages.
What Happens If You Don’t Have Car Insurance?
If you’re tempted to skip out on having car insurance, think again. The penalties for driving without insurance are steep.
Every state sets its own consequences. In Massachusetts, your first offense can cost you up to $1,000. And in New Mexico? You might face up to 90 days in jail.
While other states might not have quite as severe penalties, you can rest assured they’ll all fine you in some way.
That said, there are two states where car insurance isn’t mandatory — Virginia and New Hampshire. But in Virginia, you’ll still need to pay a $500 uninsured motorist’s vehicle fee. And if you’re at fault for an accident in New Hampshire without insurance, you’ll be legally responsible for up to $25,000 per person for bodily injury liability, up to $50,000 per accident, as well as up to $25,000 in property damage liability.
Now You Know: What Is Car Insurance?
Now you should be ready to get a policy for your vehicle since you know the answer to “what is car insurance?” Luckily, Freeway Insurance is here to help.
Freeway’s affordable auto insurance can save you big while providing the protection you need. Get your free quote online, by calling us at 800-777-5620.
